News June 2013

New Nukes

BRITISH ministers have held talks with Chinese nuclear energy firms over the possibility of their building nuclear power stations in the UK. Michael Fallon, the energy minister, confirmed last week that he had met officials from Chinese firms. His department would not name them but they are believed to include the China National Nuclear Corporation and the China Guangdong Nuclear Power Group. The meetings coincide with deadlock in the government’s negotiations with EDF, the French state energy firm, over its plans to build a new nuclear station at Hinkley Point in Somerset.

Nuclear Guarantee

The U.K. government’s decision to guarantee as much as 10 billion pounds ($15 billion) in debt for the first nuclear power station in two decades helps ensure Electricite de France SA will support construction of the plant. Treasury Chief Secretary Danny Alexander announced backing for the project in southwest England yesterday as the Energy Department outlined subsidised rates for wind and solar power of at least 100 pounds per megawatt hour for the next three years. EDF has indicated it needs about 95 pounds a megawatt hour to move ahead with the project. The decisions fanned speculation that Prime Minister David Cameron’s government is preparing to announce incentives strong enough to prompt EDF to build the plant. Nuclear along with offshore wind is at the heart of Cameron’s program for replacing the fifth of the nation’s power generation that’s scheduled to retire from service within 10 years.

27 June 2013

Reject a new generation of nuclear power stations; based on the evidence nuclear is a far more expensive way of reducing carbon emissions than promoting energy conservation and renewable energy.

Not satisfied with giving EDF Energy a potential nuclear windfall of up to £143bn over the next 35 years for its Hinkley Point C project, Liberal Democrats in the coalition Government now plan to remove most of the risk for potential investors in the £14bn project.

Chief Secretary to the Treasury, Liberal Democrat, Danny Alexander has announced that “…the proposed new nuclear power station at Hinkley Point C is eligible for a UK Guarantee.”

In a speech to the House of Commons, Alexander confirmed that the Government is prepared to guarantee £10bn of the expected £14bn cost of building two new reactors at the Somerset site. However, Alexander admitted that the long-running negotiations between the government and EDF over the level of the guaranteed or “strike price” electricity produced in the reactors can expect have not been resolved and no deal has yet been done.

The UK Guarantee scheme is basically a way for the Government to pass on its “hard-won fiscal credibility … to support the UK economy”. The idea is that it will kick start critical infrastructure projects that may have stalled because of adverse credit conditions. So the Hinkley Project should be able to borrow money from investors at a lower interest rate than would otherwise have been the case. According to European Community Competition Law this kind of loan guarantee does represent state aid, so, in theory, the Government should seek European Commission permission before going ahead with this scheme.

It is not surprising that investors want some sort of guarantee when EDF’s other nuclear project at Flamanville in Normandy was originally expected to cost €3.3 billion and be ready around 2012. Now it is expected to cost €8.5bn and won’t be ready until at least 2016. The other reactor of the same type being built in Europe at Olkiluoto in Finland was due to be completed in 2009, but is now not expected to be ready until 2016, with a similar increase in cost.

Another Liberal Democrat, Energy Secretary Ed Davey said at a press conference: “…the purposes of offering to EDF the opportunity to have one of the Treasury’s UK infrastructure guarantees is to help that project, but it’s actually separate from our negotiations on the strike price and I can’t give you a time for them. There is an intense negotiation with EDF on (Hinkley Point C) HPC and when we conclude – if we conclude – then we will publish a strike price with all the terms and conditions.”

Ed Davey is the man who, in June 2006, in a document called ‘Where will Blair hide his nuclear tax bombshell?‘ declared nuclear power to be unaffordable and unnecessary. He predicted that the Labour Government would attempt to hide the true cost of nuclear power by introducing some form of guaranteed market or price, through super-long term contracts. Little did we know at the time at this is what the Liberal Democrats would actually implement themselves in Government.

After the May 2010 General Election, the previous Energy Secretary, Liberal Democrat Chris Huhne, who had spent most of his life forcefully arguing against nuclear power and condemning it as a ‘tried, tested and failed technology which carries huge environmental and security risks’, agreed to allow the Tories to pass laws that make new nuclear construction possible “provided that they receive no public subsidy”.

The UK Guarantees scheme will cover construction risk for Hinkley Point, one of the main sticking points for investors on new nuclear schemes. Yet the Government continues to insist nothing it is offering to the nuclear industry represents a subsidy – because the guarantees will be offered at a commercial rate.

Tory Energy Minister Michael Fallon might insist that EDF does not have the Government “over a barrel”, over the strike price negotiations, but according to UBS analyst, Stephen Hunt EDF Energy is “very much in the driving seat in terms of having the stronger hand” in the talks with the UK government. He said the strike price for Hinkley Point C, which is expected to be about £95/MWh, if linked to the consumer price index (CPI), as some press reports have suggested, would be closer to £113/MWh by 2020.

Roland Vetter, analyst at CF Partners says a CPI-linked strike price will result in revenues to EDF of £143 billion over the expected 35 years of the contract, compared with £86 billion if the contract was not linked to inflation.

Nuclear Police

Police officers with the elite force that guards Britain’s nuclear power stations have been caught drunk, using drugs, misusing firearms and also accused of sexual harassment and assault. The offences by officers with the Civil Nuclear Constabulary (CNC), released under the Freedom of Information Act, have raised concerns about the safety of the UK’s nuclear plants and radioactive material. Such is the array of serious misdemeanours by the CNC officers– who are funded directly by the energy companies – that it raises grave concerns about the safety of the UK’S nuclear power plants. Paul Flynn MP said: “The UK sent 441 of our soldiers to die in Afghanistan to protect us from alleged terrorist threats to the UK, Nuclear installation are the prime nightmare targets that could create mass devastation. This evidence suggests sacrifices abroad but woefully weak protection standards at home.” Robin Oakley, Campaigns Director for Greenpeace UK, said: “This deeply worrying catalogue of misdemeanours is a reminder that nuclear reactors will always be vulnerable to human mistakes and irresponsibility. If the people supposed to protect us from probably the highest level of nuclear risk don’t take safety seriously, what confidence can we have in the rest of the nuclear industry’s operations?”

EMR

Ministers could announce strike prices for clean energy projects as early as this week as the government seeks to accelerate infrastructure investment. The government could this week announce measures designed to unlock billions of pounds in green energy investment, after sources indicated ministers are preparing to bring forward confirmation of new support contracts for clean energy projects. It remains unclear whether the announcement will include the draft strike prices for all clean energy technologies, given that negotiations on the financial support for EDF’s proposed Hinkley Point nuclear plant are on-going.

NDA

Crucial milestones were achieved in the clean-up of the UK’s nuclear legacy last year, the Nuclear Decommissioning Authority (NDA) has revealed in its annual report and accounts. Progress was generally good across the NDA’s 19 licensed sites, with achievements during 2012/13 including: completion of defueling at Chapelcross and Dungeness A, removing 99% of radioactivity from those sites; agreement of a plan to bring forward the closure of Winfrith and Harwell research sites by a combined 32 years, with potential cost savings of £500 million; integration of a new contract at Dounreay, expected to save taxpayers £1bn and bring forward closure by 17 years; higher than expected commercial income of almost £900m, aided by extended generation at Wylfa and land sale at Capenhurst worth £50m; progress on a £7 billion competition to run 12 sites; largest ever programme of work in decommissioning programme for 10 Magnox sites; completion of first five years under private control for the Low Level Repository in Cumbria, which has so far saved taxpayers £30m; strong industrial safety performance at Sellafield whilst delivering three key projects to enable future retrieval of radioactive waste from legacy storage facilities; successful completion of the third shipment of vitrified highly active waste to Japan.

NDA

The public body charged with overseeing the dismantling of Britain’s network of atomic power and research stations will reveal on Monday that its estimates for the lifetime cost of the programme has risen by billions of pounds. Despite this, the Nuclear Decommissioning Authority (NDA) will say in its annual report that it is getting to grips with the clean-up problem because the rate of cost growth is slowing year-on-year. Yet the soaring costs will alarm industry critics at a time when the government is trying to encourage construction of a new generation of atomic power plants while plans to construct a permanent home for high-level radioactive waste are stalled. In the NDA’s 2011 annual report the provisional cost of dealing with the UK’s nuclear legacy was put at £53bn, compared with a 2010 figure of £49bn. The new number in the 2012 set of accounts is expected to be around £55bn. But under previous accounting methods, the figure historically used has risen to well over £80bn with some predicting the final bill could exceed £100bn.

Energy Supplies

Ofgem is preparing to issue its starkest warning yet over the growing risk of blackouts in Britain as power stations are shut and investment in new plants stalls. The regulator is expected to publish electricity supply and demand forecasts within weeks, showing that spare capacity has fallen as more gas-fired plants have been mothballed. It is likely to reiterate warnings that even if blackouts are avoided, power prices will rise steeply. Britain’s spare power margin will be so narrow by the winters of 2014-15 and 2015-16 that unexpected events such as more plant closures, nuclear reactor outages or unusually cold weather could drive household electricity bills up by as much as 20pc, Peter Atherton, an analyst at Liberum Capital, has warned.

Nuclear Subsidies

The EU could delay access to the new contracts for difference (CfD) subsidy mechanism for clean energy in the UK beyond the April 2014 target launch date, ICIS has learned. The CfDs will let companies sell low-carbon generation on the wholesale market at a set strike price, as part of the UK’s forthcoming electricity market reform. However, the European Commission has to approve the CfD model before it can come into force, as it constitutes state aid. The Department of Energy & Climate Change (DECC) has said this approval could take about 18 months, and the process has not yet begun. This adds to the uncertainty surrounding the CfD structure, which industry sources say are undermining investor confidence. Jonathan Brearley, DECC’s director of the electricity market reform, told ICIS he was unsure of the approval timelines. “It is my current understanding that the process will take less than that [18 months to two years] for renewables [excluding nuclear generation].” Brearley added that aid to renewables such as onshore and offshore wind are likely to be approved faster than nuclear and carbon capture and storage (CCS) technology. “I’ve heard varying reports on how long the CfD for nuclear would take to be reviewed by the Commission – from between one-and-a-half to five years,” a lawyer specialised in energy said. Years of delay may not impact new nuclear plants, such as EDF’s 3.2GW Hinkley Point C project, however, since they take about a decade to build. “As long as EDF has the confidence that the CfD will be approved by the Commission, a delay of several years would not matter much since Hinkley Point C will not start generating energy until 2024,” UBS utilities analyst Stephen Hunt told ICIS. “This is a pressing issue for low carbon generators other than nuclear.”